Songs

Tuesday 3 May 2016

The Current Tax System is Unfair To The Middle Class and Lower Income Groups, Do You Agree?


INTRODUCTION- by Rohani

In the 2014 Budget announcement, the Government announced that GST will be implemented in Malaysia effective from April 2015 at the rate of 6 % and this new tax will replace the current Sales and Service Tax (SST). The weakness of the current SST is a high rate of tax prevention. To overcome this problem the Government proposes GST. GST is a broad-based consumption tax, based on the value-added concept and is imposed on a multiple-stage basis. This is a key difference from the current SST which is levied at only one stage, which is the end of the supply chain. Under GST, the tax burden is ultimately borne by the consumer at the time of purchase. Business or firm will not pay GST because after it is registered for the purpose of GST, it will be allowed to claim input tax credit to balance against the GST taxed on the goods or services supplied to its customers. Therefore, the GST boasts a self-policing device, whereby businesses will automatically factor in the GST as part of the selling price on inputs to other manufacturers. This indirectly administers the burden of the GST, while significantly reducing cases of tax avoidance. Business or firm knows that the GST is claimable and will have less reason to avoid tax. Furthermore, GST will not be a cost to business or firm, nor will it appear as an expense in their financial statements because GST shifts the tax burden to the consumers. 



HISTORY OF TAX- by AhpiramiiTax history for more than 2,500 years has focused on two significant issues, namely, who pays and what is taxed. For most of human history, taxes were paid by the poor (peasants, slaves or conquered people). Rulers collected the money from taxation to pay for the cost needed for building public artifacts such as monuments and temples. Some of the money was used to finance warfare. Taxation usually stopped during times of peace. When another war broke out, tax was usually brought back again to fund the war. 

The development of capitalism is associated with the growth of business and the economic structure of Western countries led to further development and enhancement of the taxation structure. By definition, tax is identified as the distribution of wealth in society. Practically, taxation is a mechanism to collect revenue in order for Governments to meet their expenditures. The main purpose of taxation is to accumulate funds for the functioning of the Government. No Government in the world can run its country without taxes, or in other words, a Government can run its country through public funding which is collected in the form of taxes. Therefore, it can be well understood that the purpose of taxation is very simple and obvious for proper functioning of the state. 



WHAT IS GST?- by Ahpiramii 





GST is a tax scheme where the tax is imposed at each phase of the manufacturing process so that each phase brings income to the government. GST is introduced at the beginning of the manufacturing process and is counted in each phase of product or service production and marketing until it reaches the consumer, who pays the tax. GST is collected after the final consumer prices are enforced. Even though GST is enforced at each level of the supply chain, the tax element does not become part of the cost of the product because GST paid on the business inputs is claimable. So, the entire burden of the tax will be allowed by the consumer. GST is a regressive tax, because it taxes on consumption and in terms of the same consumption, people with lower income spend a larger part of their income rather than those with higher income. It seems to burden the low-income households because they have larger marginal propensity to consume and most of their income will be spent on food and requirements.



THE EFFECTS OF GST TOWARDS THE MIDDLE CLASS AND LOWER INCOME GROUPS – by Syarmin and Nevettha





Yes, we agreed that GST has a major impact on the Malaysian society especially for middle class and lower income groups. The implement of Goods and Services Tax (GST) will replace the Malaysian service and sales tax. GST has been implemented in US, Singapore, Thailand and Japan where Malaysia's GST will be charged four percent for buying and selling transactions. The basic food like sugar, flour, and oil are free from GST in Malaysia. GST is a consumption tax where everyone can be charged of all the supplies of goods and services. For example, if the total price of a good is RM10, then consumers will have to pay an extra 40 cents after GST is charged. However, GST will affect the middle and low income group in Malaysia who use their income for basic necessities.

The GST that has been implemented in Malaysia is a regressive tax. In other words, the tax will enforce a smaller burden on those who are richer. It is expected that the lower income earners will pay more GST than the higher income earner. Besides that, it is not possible to make GST a progressive tax and reduce the GST burden on the low and middle-income groups if it is necessary to raise the same amount of tax revenue. Therefore, the low-income households will bear the higher GST tax burden. Other than this, the implementation of GST could raise barriers to social mobility for the lower income households. Low-income households spend more on essential items, such as food and utilities. A tax on food consumption among other things, will further limit the capability to save for many of the lower income households. Without sufficient savings, the poor could face extreme difficulties in collecting assets or have better access to information technology and education.

Furthermore, income support provided to the low-income households would cause upward shift in demand for goods and services, especially basic necessities of life such as food and clothing. To support this upward shift in demand, the production facilities would gradually expand and begin to absorb the idle capital. At the same time, in order to support the increased production, the economy would generate more jobs and new employment opportunities. This added employment in turn would generate more demand for goods and services, more room for additional investments, and finally, the growth cycle based on balance consumption would contribute to a more equitable income distribution and balance economic growth. On the other hand, a research found that the rich will benefit more when GST is implemented because they save more and spend less while the lower income groups have larger marginal propensity to consume. Low- income households have very little savings and a large share of their income is spent on essential items, such as food and utilities. Therefore, low-income households are sensitive to fluctuations in income and commodity-related revenue. In addition, informal sector earnings are unstable and make the poor more vulnerable to price shocks in the economy.

A study shows that low-income households are worried that GST because it will increase the prices of goods in the near future and living costs will increase significantly when GST is implemented. The empirical study by UOB Global Economics & Market Research compared the impact of GST in Singapore, Japan, Thailand and Australia, and found that GST has a short-term impact on consumer price index (CPI). GST increases the CPI and inflation rates return to long-term averages in the years after GST implementation. Furthermore, the study also indicated that private consumption spending could be reduced after the implementation of the GST.



CONCLUSION- by Saranya



GST is a regressive tax and imposes a burden on end-user consumers of products. GST seems to have a negative impact as lower income earners pay more tax than higher income earners. It promotes inflation which reduces the purchasing power of consumers, and raises barriers to upward social mobility for the lower income households. In the long run, inflation may trigger higher interest rates and dampen private investment as well as overall economic growth. On the other hand, implementation of zakat has a positive effect on aggregate demand and spending pattern of low-income households. There are two separate arguments fundamental these claims. 

The government will try to neutralise the higher cost of living for the lower income group through various forms of direct and indirect financial assistance including BR1M and reducing income tax rates. However, this is probably not going to fully recover the GST impact.

The other good news is that tax cheating or leakages will greatly be reduced as everyone has to pay taxes the moment they spend money, whether they are criminals, income tax evaders or foreigners.


REFERENCES
Google.com. (2016). Google. [online] Available at: https://www.google.com/?gws_rd=ssl#q=the+impact+of+gst+in+malaysia+lower+income+groups [Accessed 3 May 2016].

Anon, (2016). [online] Available at: http://www.treasury.gov.my/index.php?option=com_content&view=article&id=2761:what-is-the-impact-of-gst-on-economy-consumption-stimulates-the-economy-but-people-may-not-want-to-consume-spend-as-much-if-they-are-taxed-for-it&catid=506&Itemid=2493&lang=en [Accessed 3 May 2016].

Reporters, F. and Shukry, A. (2013). ‘GST will benefit the rich, hurt the poor’. [online] Free Malaysia Today. Available at: http://www.freemalaysiatoday.com/category/nation/2013/10/22/gst-will-benefit-the-rich-hurt-the-poor%E2%80%99/ [Accessed 3 May 2016].

http://www.themalaymailonline.com/malaysia/article/three-letters-one-taxing-burden-for-malaysians

No comments:

Post a Comment